What's new
　　With the resurgence of COVID-19 since mid-March, Haier Smart Home’s retail sales of most household appliances have declined. However, sales of refrigerators and freezers have increased thanks to rising demand for food storage. Data from All View Cloud (AVC) shows that from March 28 to May 1, online retail sales of refrigerators & freezers rose 4.2% YoY and offline retail sales fell 17.9% YoY.
　　Comments
　　Haier’s advantage in the refrigerator market is prominent. In 2021, revenue from refrigerators & freezers at Haier totaled Rmb71.6bn (Rmb36.9bn at home and Rmb34.7bn overseas). Revenue for Whirlpool reached US$6.7bn (or Rmb42.7bn), Midea Rmb30bn, Hisense Rmb23bn and Meiling Rmb8.2bn, reflecting Haier’s leading position in the market. Data from AVC shows shipments and retail sales of refrigerators & freezers in China reached 57.42mn units and Rmb109.4bn in 2021, with a CAGR of 0.9% for retail sales in 2015-2021, mainly driven by higher average selling prices (ASP). Despite the largely mature global refrigerator market, Haier’s market share is still growing. Haier’s revenue from refrigerators & freezers increased from Rmb36.3bn in 2016 to Rmb71.6bn in 2021, with a CAGR of 15%. In 2021, Haier accounted for around 40% of retail sales of refrigerators in China and about 22% in the global market.
　　Rising share of high-end products to contribute strong profitability. In 2021, revenue from the company’s Casarte refrigerators amounted to Rmb5.62bn, accounting for 15.2% of Haier’s revenue from refrigerators in the domestic market. The proportion of retail sales of Casarte refrigerators to total sales also rose from 14.6% in 2014 to 34.9% in 2021, implying a higher markup of the high-end Casarte brand. By comparison, Midea Group’s high-end brand COLMO accounted only for 10.0% of the group’s total retail sales in 2021, whose proportion of high-end products is lower than that of Haier. In addition, gross margin and net margin of Haier’s refrigerator business reached 31.8% and 8.1% in 2021, both higher than the overall gross and net margin of 0.5ppt and 2.3ppt. We estimate the net margin of high-end Casarte refrigerators was above 15%.
　　Demand for refrigerators & freezers rises. The resurgence of COVID-19 since 2020 has led to growing demand for food storage. Imports of refrigerators in the US increased 12% and 29% YoY in 2020 and 2021. During 2020, demand for refrigerators did not rise sharply due to undisrupted e-commerce and logistics. Data from AVC shows domestic retail sales of refrigerators and washing machines in 2020 dropped 1.8% and 6.2% YoY. Since mid-March, 2022, demand for refrigerators and freezers in other regions including Zhejiang, Jiangsu and Beijing grew robustly. Moreover, rapidly rising costs since start-2021 weighed on the profitability of Haier’s refrigerators in 2H21. During the COVID-19 resurgence, we note the smooth increases in Haier’s product prices. This includes the rising ASP of its top 3 products at online sales channels from April 4 to May 1 which were higher than at end-March.
　　Financials and valuation
　　We maintain our 2022 and 2023 earnings forecasts at Rmb15.25bn and Rmb17.62bn. Haier A-shares is trading at 15.8x, H-shares at 14.2x and D-shares at 6.1x 2022e P/E. We maintain OUTPERFORM rating for A-shares, H-shares and D-shares with TPs of Rmb31.3, HK$35.5 and EUR1.8, implying 19.4x, 18.9x and 8.2x 2022e P/E with 22%, 33% and 36% upside.
　　Risks
　　Risks concerning global operations; fluctuations in demand; fiercer competition.